Best Interest Contract/PTE Comparison

Transcription

1 Best Interest Contract/PTE Comparison General Conditions Relief Provided Full BIC (IRAs) BIC for ERISA Plans BIC for Level Fee Fiduciaries PTE Requires the following: 1. The transaction be effected by the insurance agent or broker in the ordinary course of its business; 2. The transaction be at least as favorable to the Plan or IRA as an arm s length transaction with an unrelated party would be. 3. Reasonable compensation within the meaning of ERISA. Provides relief from the restrictions Provides relief from the restrictions Provides relief from the restrictions Provides relief from the restrictions of ERISA section 406(a)(1)(D) and of ERISA section 406(a)(1)(D) and of ERISA section 406(a)(1)(D) and of ERISA section 406(a)(1)(A) 406(b) and the sanctions imposed 406(b) and the sanctions imposed by 406(b) and the sanctions imposed by through (D) and 406(b) and the by Code section 4975(a) and (b), by Code section 4975(a) and (b), by Code section 4975(a) and (b), by taxes imposed by Code section reason of Code section reason of Code section reason of Code section 4975(a) and (b) by reason of Code 4975(c)(1)(D), (E), and (F). 4975(c)(1)(D), (E), and (F). 4975(c)(1)(D), (E), and (F). section 4975(c)(1)(A) through (F). Note: covers only the following transactions, among others, if the exemption requirements are met: 1. The receipt, directly or indirectly, by an insurance agent or broker of an insurance commission and related employee benefits from an insurance company in connection with the purchase, with assets of a Plan or IRA, including through a rollover or distribution, of an insurance contract or a fixed rate annuity contract. 2. The receipt of a mutual fund commission by a principle underwriter for an insurance 1

2 Full BIC (IRAs) BIC for ERISA Plans BIC for Level Fee Fiduciaries PTE company. 3. The effecting by an insurance agent or broker, with assets of a Plan or IRA, of a fixed rate annuity contract or insurance contract. 4. The purchase, with assets of a Plan or IRA of a fixed rate annuity contract or insurance contract from an insurance company and the receipt of compensation or other consideration from an insurance company. Contract (II(a)) Fiduciary Notice (II(b)) Impartial Conduct Standards (II(c)) Required. The Institution states in the contract that it and its Adviser(s) act as fiduciaries under ERISA or the Code, or both, with respect to 1. Any investment advice provided, 2. Any investment recommendations regarding the Plan or participant or beneficiary account. The Institution promises in the contract that it and its Advisers will adhere to and comply with the following standards: 1. Act in the best interest of the Investor. 2. Ensure that compensation is not in excess of reasonable compensation. Prior to or at the same time as the execution of the recommended transaction, the Institution must affirmatively state in writing that it and its Adviser(s) act as fiduciaries under ERISA or the Code, or both, with respect to 1. Any investment advice provided, 2. Any investment recommendations regarding the Plan or participant or beneficiary account. The Institution and its Advisers must comply with the following standards: 1. Act in the best interest of the Investor. 2. Ensure that compensation is not in excess of reasonable compensation. 3. Ensure that statements will not be materially misleading. Prior to or at the same time as the execution of the recommended transaction, the Institution must affirmatively state in writing that it and its Adviser(s) act as fiduciaries under ERISA or the Code, or both, with respect to 1. Any investment advice provided, 2. Any investment recommendations regarding the Plan or participant or beneficiary account. The Institution and its Advisers must comply with the following standards: 1. Act in the best interest of the Investor. 2. Ensure that compensation is not in excess of reasonable compensation. 3. Ensure that statements will not be materially misleading. Covered parties (e.g., agents, brokers, consultants) must: 1. Act in the best interest of the Plan or IRA at the time of the transaction. 2. Ensure that statements will not be materially misleading (for this purpose, failure to disclose a relevant material conflict of 2

3 Warranties (II(d)) Disclosures (II(e)) Transaction Disclosure (Points 1, 3, and 4) Full BIC (IRAs) BIC for ERISA Plans BIC for Level Fee Fiduciaries PTE Ensure that statements will not be materially misleading. interest is considered a misleading statement). The Institution must promise in the The Institution must: contract to: 1. Adopt and comply with written 1. Adopt and comply with written policies and procedures to policies and procedures to ensure Advisers adhere to the ensure Advisers adhere to the Impartial Conduct Standards; Impartial Conduct Standards; 2. Identify and document material 2. Identify and document material conflicts of interest, adopt conflicts of interest, adopt measures to prevent such measures to prevent such conflicts from causing violations conflicts from causing of the Impartial Conduct violations of the Impartial Standards, and designate a Conduct Standards, and person to address such conflicts; designate a person to address 3. Ensure that the policies and such conflicts; procedures do not require use or 3. Ensure that the policies and reliance upon quotas, appraisals, procedures do not require use performance or personnel or reliance upon quotas, actions, bonuses, contests, appraisals, performance or special awards, etc. that are personnel actions, bonuses, intended or would be expected to contests, special awards, etc. cause Advisers to make that are intended or would be recommendations not in the best expected to cause Advisers to interests of the Investor make recommendations not in the best interests of the Investor In the contract (or a separate written disclosure provided to the Investor with the contract), the Institution must: 1. State the best interest standard of care, inform the Investor of the services provided, and describe how the Investor will pay for services. 2. Describe material conflicts of interest, disclose any fees or charges that will be imposed on the Investor, and state the types In a single written disclosure provided to the Plan prior to or at the same time as the execution of the recommended transaction, the Institution must clearly: 1. State the best interest standard of care, inform the Investor of the services provided, and describe how the Investor will pay for services. 2. Describe material conflicts of interest, disclose any fees or charges that will be imposed on In the case of a recommendation to roll over from an ERISA plan to an IRA, the Institution must document the specific reason why the recommendation was considered to be in the best interest of the investor. The document must include consideration of: 1. The Investor s alternatives to a roll over and the fees and expenses associated with both the Plan and the IRA; 2. Whether the employer pays for With respect to the purchase of a Fixed Rate Annuity Contract, the insurance agent or broker must provide, prior to the execution of the transaction, the following information in writing to an independent fiduciary: 1. If the agent, broker, or consultant is an affiliate of the insurance company whose contract is being recommended is limited by any agreement with the insurance company, 3

4 Full BIC (IRAs) BIC for ERISA Plans BIC for Level Fee Fiduciaries PTE of compensation that the Institution expects to receive the Investor, and state the types of compensation that the some or all of the Plan s administrative expenses; and from third parties in connection with investments. Financial Institution expects to receive from third parties in 3. The different levels of services and investments available under 3. Inform the Investor of his/her connection with investments. each option. right to obtain copies of the 3. Inform the Investor of his/her Institution s policies and procedures, as well as the specific disclosure of costs, fees, and compensation; and describes how the Investor can get information (if the request is made before the transaction, the information must be provided before the transaction; if made after the transaction, the information must be provided within 30 business days). right to obtain copies of the Financial Institution s policies and procedures, as well as the specific disclosure of costs, fees, and compensation; and describes how the Investor can get information (if the request is made before the transaction, the information must be provided before the transaction; if made after the transaction, the information must be provided within 30 business days). In the case of a recommendation to roll over from another IRA or to switch from a commission-based account to a level fee arrangement, the Level Fee Fiduciary must document the reasons that the arrangement is considered to be in the best interests of the Investor, including the services that will be provided for the fee. 4. Include a link to the website and describe the contents that are available. 4. Include a link to the website and describe the contents that are available. 5. Disclose to the Investor whether the Institution offers proprietary products or receives third party payments with respect to any recommended investments (and, to the degree applicable, it must notify the Investor of the limitations placed on the universe of investments that the Adviser 5. Disclose to the Investor whether the Institution offers proprietary products or receives third party payments with respect to any recommended investments (and, to the degree applicable, it must notify the Investor of the limitations placed on the universe of investments that the Adviser may offer for purchase). may offer for purchase). 6. Provide contract information for 6. Provide contract information for a representative of the Institution (and, to the degree applicable, it must provide a statement that the Investor can research the Institution using a representative of the Institution (and, to the degree applicable, it must provide a statement that the Investor can research the Institution using certain government databases). 4 the nature of the affiliation, limitation, or relationship; 2. The insurance commission for the first year and for subsequent years that will be paid directly or indirectly by the insurance company to the agent, broker, or consultant in connection with the purchase of the recommended contract. 3. Any charges, fees, discounts, penalties, or adjustments which may be imposed under the contract in connection with its purchase, holding, exchange, termination, or sale. Following receipt of the disclosed information, and prior to the execution of the transaction, the fiduciary or IRA owner must acknowledge in writing receipt of the information and approve the transaction on the behalf of the Plan or IRA. (Similar disclosures apply with respect to the sale of securities to ERISA Plans and related receipt of mutual fund commissions by principal underwriters.)

5 Website Disclosure Proprietary and Third Party Payments Full BIC (IRAs) BIC for ERISA Plans BIC for Level Fee Fiduciaries PTE certain government databases). 7. Describe whether the 7. Describe whether the Adviser/Institution will monitor the Investor s investments and alert the Investor as to any Adviser/Institution will monitor the Investor s investments and alert the Investor as to any recommended changes. recommended changes. 8. The Institution will not violate 8. The Institution will not violate this section if it makes a disclosure error provided the Institution discloses the correct information as soon as practicable, but not later than 30 days after the date on which is discovers/reasonably should have discovered the error. this section if it makes a disclosure error provided the Institution discloses the correct information as soon as practicable, but not later than 30 days after the date on which is discovers/reasonably should have discovered the error. Yes requirements are on the Yes requirements are on the Financial Institution For an Institution that limits Advisers investment recommendations in whole or in part based on whether the investments are proprietary products or generate third party payments, it will be deemed to satisfy the best interest standard if before or at the time of execution: 1. The Investor is informed in writing (a) that the Institution offers proprietary products or receives third party payments and (b) that the Adviser is limited on the universe of investments that he or she may recommend. 2. The Investor is informed in writing of any material conflicts of interest that the Institution or Adviser have with respect to the recommended Financial Institution For an Institution that limits Advisers investment recommendations in whole or in part based on whether the investments are proprietary products or generate third party payments, it will be deemed to satisfy the best interest standard if before or at the time of execution: 1. The Investor is informed in writing (a) that the Institution offers proprietary products or receives third party payments and (b) that the Adviser is limited on the universe of investments that he or she may recommend. 2. The Investor is informed in writing of any material conflicts of interest that the Institution or Adviser have with respect to the For an Institution that limits Advisers investment recommendations in whole or in part based on whether the investments are proprietary products or generate third party payments, it will be deemed to satisfy the best interest standard if before or at the time of execution: 1. The Investor is informed in writing (a) that the Institution offers proprietary products or receives third party payments and (b) that the Adviser is limited on the universe of investments that he or she may recommend. 2. The Investor is informed in writing of any material conflicts of interest that the Institution or Adviser have with respect to the 5

6 Full BIC (IRAs) BIC for ERISA Plans BIC for Level Fee Fiduciaries PTE transaction. recommended transaction. recommended transaction. 3. The Institution documents in 3. The Institution documents in 3. The Institution documents in writing the limitations of the writing the limitations of the writing the limitations of the universe of recommended universe of recommended universe of recommended investments, the material conflicts of interest that exist, investments, the material investments, the material and the services it will provide conflicts of interest that exist, conflicts of interest that exist, to Investors in exchange for third party payments. It must and the services it will provide to Investors in exchange for third and the services it will provide to Investors in exchange for third also ensure that none of the party payments. It must also party payments. It must also above considerations will cause ensure that none of the above ensure that none of the above the Institution or its Advisers to considerations will cause the considerations will cause the receive compensation in excess of reasonable compensation. Institution or its Advisers to Institution or its Advisers to 4. The Institution adopts and receive compensation in excess receive compensation in excess adheres to policies that meet the of reasonable compensation. of reasonable compensation. aforementioned disclosure 4. The Institution adopts and 4. The Institution adopts and requirements. adheres to policies that meet the adheres to policies that meet the 5. Compensation must be aforementioned disclosure aforementioned disclosure reasonable. requirements. requirements. 6. The Adviser s recommendations must reflect 5. Compensation must be 5. Compensation must be the car, skill, and prudence of a reasonable. reasonable. person acting in a like capacity and familiar with such matters. 6. The Adviser s recommendations must reflect the car, skill, and prudence of a person acting in a like capacity and familiar with such matters. 6. The Adviser s recommendations must reflect the car, skill, and prudence of a person acting in a like capacity and familiar with such matters. Disclosure to DOL and Record Keeping EBSA Disclosure The Institution, before receiving compensation in reliance on the exemption, must notify DOL of its intention to rely on it. Recordkeeping The Institution must maintain the records necessary to enable certain EBSA Disclosure The Institution, before receiving compensation in reliance on the exemption, must notify DOL of its intention to rely on it. Recordkeeping The Institution must maintain the records necessary to enable certain The relevant party (e.g., agent, broker, consultant, principal underwriter) must maintain the records necessary to enable certain persons to determine whether the conditions of the exemption have been met with respect to a transaction for six years. Such persons include: 6

7 Full BIC (IRAs) BIC for ERISA Plans BIC for Level Fee Fiduciaries PTE persons to determine whether the conditions of the exemption have been met with respect to a transaction for six years. Such persons to determine whether the conditions of the exemption have been met with respect to a transaction for six years. Such persons include: persons include: 1. Any authorized employee or 1. Any authorized employee or representative of DOL or IRS; representative of DOL or IRS; 2. Any fiduciary of a Plan that 2. Any fiduciary of a Plan that engaged in an investment transaction pursuant to this exemption (or any employee or engaged in an investment transaction pursuant to this exemption (or any employee or representative of the fiduciary); representative of the fiduciary); 3. Any contributing employer and 3. Any contributing employer and any employee whose members any employee whose members are covered by a Plan; are covered by a Plan; 4. Any participant or beneficiary of 4. Any participant or beneficiary of a Plan, IRA owner, or representative thereof. a Plan, IRA owner, or representative thereof. None of these persons, however, are None of these persons, however, are authorized to examine records regarding another Investor s recommended transaction, privileged trade secrets, or authorized to examine records regarding another Investor s recommended transaction, privileged trade secrets, or privileged commercial or financial information. privileged commercial or financial information. If the Institution refuses to disclose information on the basis that the information is exempt, the Institution must provide written notice advising the requestor of the reasons for refusal within 30 days. If the records are lost or destroyed, then no prohibited transaction will be considered to have occurred. No party, other than the Institution responsible for complying, will be If the Institution refuses to disclose information on the basis that the information is exempt, the Institution must provide written notice advising the requestor of the reasons for refusal within 30 days. If the records are lost or destroyed, then no prohibited transaction will be considered to have occurred. No party, other than the Institution responsible for complying, will be subject to the civil penalty that may be assessed under ERISA section 7 1. Any authorized employee or representative of DOL or IRS; 2. Any fiduciary of a Plan or any employee or representative of the fiduciary; 3. Any contributing employer and any employee whose members are covered by a Plan; 4. Any participant or beneficiary of a Plan, IRA owner, or representative thereof. None of these persons, however, are authorized to examine records regarding another Investor s recommended transaction, privileged trade secrets, or privileged commercial or financial information. If the Institution refuses to disclose information on the basis that the information is exempt, the Institution must provide written notice advising the requestor of the reasons for refusal within 30 days. If the records are lost or destroyed, then no prohibited transaction will be considered to have occurred. No party, other than the Institution responsible for complying, will be subject to the civil penalty that may be assessed under ERISA section 502(i) or the taxes imposed by Code section 4975(a) and (b) if the records are not available for examination.

8 Exemption for Pre- Existing Transactions (Grandfathering) Transition Period for Exemption Full BIC (IRAs) BIC for ERISA Plans BIC for Level Fee Fiduciaries PTE subject to the civil penalty that may be assessed under ERISA section 502(i) or the taxes imposed by Code section 4975(a) and (b) if the records are not available for examination. 502(i) or the taxes imposed by Code section 4975(a) and (b) if the records are not available for examination. Failure to maintain the required records will result in the loss of the exemption only for the transaction or transactions for which records are missing/have not been maintained. Failure to maintain the required records will result in the loss of the exemption only for the transaction or transactions for which records are missing/have not been maintained. Yes Yes Yes For the period between April 10, 2017 (the applicability date of the new definition of investment advice fiduciary) and January 1, 2018, advisers and Financial Institutions may receive the relief provided by BIC (i.e., receive prohibited compensation) if they adhere to the following limited requirements: 1. comply with the BIC s impartial conduct standards (including acting in the client s best interest); 2. the Financial Institution provides to the investor (in person or electronically), at or before the point of sale, a single written disclosure (which may cover multiple transactions or all transactions occurring within the transition period) that clearly and prominently: For the period between April 10, 2017 (the applicability date of the new definition of investment advice fiduciary) and January 1, 2018, advisers and Financial Institutions may receive the relief provided by BIC (i.e., receive prohibited compensation) if they adhere to the following limited requirements: 1. comply with the BIC s impartial conduct standards (including acting in the client s best interest); 2. the Financial Institution provides to the investor (in person or electronically), at or before the point of sale, a single written disclosure (which may cover multiple transactions or all transactions occurring within the transition period) that clearly and prominently: (i) Affirmatively states that the For the period between April 10, 2017 (the applicability date of the new definition of investment advice fiduciary) and January 1, 2018, advisers and Financial Institutions may receive the relief provided by BIC (i.e., receive prohibited compensation) if they adhere to the following limited requirements: 1. comply with the BIC s impartial conduct standards (including acting in the client s best interest); 2. the Financial Institution provides to the investor (in person or electronically), at or before the point of sale, a single written disclosure (which may cover multiple transactions or all transactions occurring within the transition period) that clearly and prominently: (i) Affirmatively states that the Failure to maintain the required records will result in the loss of the exemption only for the transaction or transactions for which records are missing/have not been maintained. 8

9 Full BIC (IRAs) BIC for ERISA Plans BIC for Level Fee Fiduciaries PTE (i) Affirmatively states that the Financial Institution and the Adviser(s) act as fiduciaries under ERISA or the Code, or both, with respect to the recommendation; (ii) Sets forth the impartial conduct standards and affirmatively states that it and the Adviser(s) adhered to such standards in recommending the transaction; (iii) Describes the Financial Institution s Material Conflicts of Interest; and (iv) Discloses to the Retirement Investor whether the Financial Institution offers Proprietary Products or receives Third Party Payments with respect to any investment recommendations; and to the extent the Financial Institution or Adviser limits investment recommendations, in whole or part, to Proprietary Products or investments that generate Third Party Payments, notifies the Retirement Investor of the limitations placed on the universe of investment recommendations; 3. The Financial Institution designates a person or persons responsible for addressing Material Conflicts of Interest and monitoring Advisers adherence to the Impartial Conduct Standards; and 4. The Financial Institution complies with the recordkeeping requirements described above. Financial Institution and the Adviser(s) act as fiduciaries under ERISA or the Code, or both, with respect to the recommendation; (ii) Sets forth the impartial conduct standards and affirmatively states that it and the Adviser(s) adhered to such standards in recommending the transaction; (iii) Describes the Financial Institution s Material Conflicts of Interest; and (iv) Discloses to the Retirement Investor whether the Financial Institution offers Proprietary Products or receives Third Party Payments with respect to any investment recommendations; and to the extent the Financial Institution or Adviser limits investment recommendations, in whole or part, to Proprietary Products or investments that generate Third Party Payments, notifies the Retirement Investor of the limitations placed on the universe of investment recommendations; 3. The Financial Institution designates a person or persons responsible for addressing Material Conflicts of Interest and monitoring Advisers adherence to the Impartial Conduct Standards; and 4. The Financial Institution complies with the recordkeeping requirements described above. Financial Institution and the Adviser(s) act as fiduciaries under ERISA or the Code, or both, with respect to the recommendation; (ii) Sets forth the impartial conduct standards and affirmatively states that it and the Adviser(s) adhered to such standards in recommending the transaction; (iii) Describes the Financial Institution s Material Conflicts of Interest; and (iv) Discloses to the Retirement Investor whether the Financial Institution offers Proprietary Products or receives Third Party Payments with respect to any investment recommendations; and to the extent the Financial Institution or Adviser limits investment recommendations, in whole or part, to Proprietary Products or investments that generate Third Party Payments, notifies the Retirement Investor of the limitations placed on the universe of investment recommendations; 3. The Financial Institution designates a person or persons responsible for addressing Material Conflicts of Interest and monitoring Advisers adherence to the Impartial Conduct Standards; and 4. The Financial Institution complies with the recordkeeping requirements described above.. 9

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